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American Airlines Hurt with Jet-Fuel Costs



American Airlines Group


AAL 8.44%

struggles to pick up rising fuel costs, putting the world's largest operator apart from competitors who have increased ticket prices and fees to increase profits.

An additional $ 750 million in fuel costs pulled US profits down 48% in third quarter, carrier carrier based in Fort Worth, Texas, said Thursday. Hurricanes that hit the southern US also hurt American business.

Other airlines, however, have stayed in front of rising fuel costs. Some earn more from high paying business travelers, while most carriers have raised luggage or change fees. These increases come as American consumers pay more for a variety of goods and services.

Delta Air Lines


DAL 4.23%

said earlier this month that earnings in the third quarter increased 1

3% to $ 1.3 billion from the previous year.

United Continental Holdings
Inc.


UAL 4.02%

said earnings increased by 30% to $ 836 million in the quarter and

Southwest Airlines


LUV -6.54%

said Thursday that profits increased by 17% to $ 615 million during that period.

"We certainly do not like our revenues to fall more than others," said US CEO Doug Parker during a conversation Thursday with analysts and journalists.

Mr. Parker said US was updating technology that has prevented the sale of premium seats and additional services, simplified flight fleet and trimming of unprofitable international flights.

"We know what we need to do," he said.

Shares in US were up 8.3% at noon on Thursday, according to the airline's forecast for unit revenues to rise as much as 3.5% in the fourth quarter. Shares in the southwest fell down 6.6% after the airline announced that non-fuel costs will rise at least 3% next year.

"We just do not see the effectiveness of our operations we really need to see, "CEO Gary Kelly told CNBC.

Southwest's fuel hedges helped isolate it from higher prices. Other airlines have also found ways to compensate for a 40 percent increase in jet fuel prices in the past year. Delta said it was able to collect 85% of its fuel bill increase, while United said it compensated for 100% of its higher costs. Americans said that it recovered 40% of the fuel price increase through higher prices and charges in the third quarter.

Investors and analysts have studied US debt burden, profit margins and weak revenue growth. They also point to increased competition that United expands, and America's major exposure to economically troubled regions like Latin America.

They have more exposure to weaker markets and less exposure to stronger markets, says analyst Joe DeNardi, Stifel. 19659013] Mr. Parker has said that US should earn an average of $ 5 billion in premium income each year. From September 30th, the airline had earned approx. 1.5 billion dollars before tax in 2018.

A hard peak travel season did not help. In a record for American airline, US exit rates ended at the time of departure and the cancellation rate increased in July according to government data.

US defaults complicate the ability to win business customers that are reliable and willing to pay a little more for it, JPMorgan Chase & Co. said. analyst Jamie Baker. Delta and United both reported sales growth in part due to higher paying business travelers.

Americans have not lost market share with corporate customers, says carrier's president Robert Isom.

"We know we must do better and we will," he said on Thursday.

In recent years, American has borrowed to pay for a overhaul of its aircraft fleet. US total debt as of 30 June was $ 24 billion, more than 3.5 times 2017 earnings before interest, taxes, depreciation and amortization. On the other hand, Delta's total debt of $ 9.3 billion on September 30 was about 1.1 times as high as earnings targets.

While US debt has struck many investors, the major expenses on new aircraft are largely completed, while other carriers still replace their fleets, "said Cowen & Co. analyst Helane Becker.

Some investors say that the steep decline in US stocks has been a overreaction.

"We see it as a fantastic opportunity," said Patrick Kaser, portfolio manager at Brandywine Global, who recently purchased US stocks. "We are big holders and we have added the position."

US reported profits of $ 341 million, or 74 cents per share, down from $ 661 million, or $ 1.36 in the same period last year. Excluding special items, earnings per share were $ 1.13, according to analysts' estimates, according to FactSet. Revenues rose 5% to record $ 11.6 billion.

Southwest said revenue increased by 5.1% in the quarter. The result was $ 1.08 per share, and lost analysts' expectations by 2 cents per share.

Write to Andrew Tangel on Andrew.Tangel@wsj.com and Alison Pages at alison.sider@wsj.com


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